Re-evaluating application strategy is one way to free up money for innovation in this recession, but companies should start the process by looking at business drivers, not a vendor, according to a Forrester Research report.
Looking at the company's vendor strategy should be the last step in building a recession-proof application strategy, according to Ray Wang, vice president and principal analyst with the Cambridge, Mass.-based research firm. This allows companies to make decisions based on business needs rather than a bias toward a particular vendor or product, he said.
"[Everyone has] traditionally done it in reverse," Wang said. "We've talked about our [vendor] strategy, but we haven't thought about it in the context of all the moving pieces. Do we have the right business case? Maybe you don't even need ERP vendor X. Maybe someone hasn't been solving your needs for the last 10 years. Start from scratch."
Companies re-evaluating their enterprise applications strategy in light of the recession must first align it with the relevant business drivers -- initiatives that will save the company money and initiatives that won't force the company to spend more. These typically include creating operational efficiencies, such as launching shared services or outsourcing programs, and initiatives that ensure compliance to product safety, financial regulations and environmental guidelines.
"What you're trying to do is focus back on the basics -- how to save some money and how to avoid being sued," Wang said.
To respond to these drivers, application development professionals need to start creating enthusiasm for compliance and operational efficiency initiatives at the grass roots level, he said. For example, they can build a closer relationship between the IT and business sides by pushing for IT line items to be included in operations and capital budgets.
Focus on the business processes
Managers then must also take the lead in adopting a business process orientation to corporate functions by breaking down barriers such as departmental organization to business processes like hire-to-retire, opportunity-to-cash, lead-to-campaign and procure-to-pay, according to the report.
Starting projects by asking outcome-based questions will help identify areas where managers can then push for business process improvements, Wang said. In turn, organizations should apply process mapping tools such as process flows and swimlane diagrams to identify common processes and use them to separate processes that are competitive differentiators from bad business processes.
With this knowledge in hand, it's time to pick an application optimization strategy, Wang said.
Killing a ton of birds with one stone
Once an organization has established goals -- like improving integration, undertaking an upgrade or shifting to a business process orientation -- it can execute on those goals. For example, he said, one strategy is consolidating instances of some applications.
"It actually kills a ton of birds with one stone," he said. "You can tie it to shared services, tie it to upgrades, tie it to data centers or tie it to some kind of modernization and way to pay for an upgrade."
Some companies may benefit from developing a data archiving strategy. For example, Wang said, an IBM Optimum customer whose Siebel system was experiencing 20% annual growth improved application response time for more than 8,500 users by archiving 23.9 million activities and 10.1 million leads in its first purge.
Simply upgrading the ERP system could be another option. But companies shouldn't upgrade based only on support timelines imposed by the vendor, according to the report. Application managers should take into account whether new features, technology improvements and compliance risk avoidance are worth the cost and risks of an upgrade, Wang said.
Strategy in hand, it's time to re-examine existing vendor relationships to see whether a new vendor or an existing vendor best helps fulfill the strategy. This includes being open to best-of-breed applications outside an organization's core vendor. Wang said that some companies are also looking at Software as a Service deployment as a way to cut costs.
Take a close look at new contracts
Better preparing for software contract renegotiations can also free up money for innovation and new products.
For instance, including flex-up and flex-down provisions in contracts can help ensure that the company pays less for software if its end users are laid off and so no longer use it. Or, when negotiating for 1,000 licenses, negotiate for the first 500 and understand the incremental costs for the next 100, and put those prices in writing in the contract.
"It allows for price protection. You have something in writing that talks about how to reduce licenses' cost," Wang said.
Also, customers that have acquired many products at a discounted rate sometimes end up paying maintenance on software they have never used. Putting a clause in the contract to pay for maintenance only when the software is deployed ensures that maintenance is paid only on software that's actually being used.
Wang also recommends considering third-party maintenance. Rimini Street is set to launch its third-party support program for SAP R/3 customers in the first quarter of 2009.
"A lot of organizations are making cuts on a short-term basis without understanding what the long-term implications are," Wang said. "By slowing down an upgrade or eliminating another project, you might end up spending more than you would make in savings."